Commercial Department: Spotlight: Virginia: November 2017

Virginia is a state that boasts the first settlement in North America at Jamestown in 1607, access to global markets via the Atlantic coastline and a highly educated workforce that is fed by the activity of the nation’s capital and its surrounding metro area, which includes a number of
northern Virginia suburbs.

Still, the state, nicknamed Old Dominion, has struggled in recent years to achieve robust economic growth. The state’s gross domestic product (GDP) posted an unimpressive 0.02 percent growth rate in 2014, compared with the national GDP growth rate of 2.4 percent that year, the Virginia
Chamber of Commerce reports. The flat GDP growth in 2014 ranked third to last nationally.

The following year, Virginia’s economy found its groove once again, posting GDP growth of 1.4 percent. In 2016, however, mirroring an overall slowdown in the U.S. economy, Virginia’s GDP growth rate slipped to 0.6 percent.

A big part of the state’s flat economic growth in recent years is the result of its reliance on federal contract dollars in an era when government downsizing is in vogue. Federal procurement spending in Virginia plummeted by $30 billion, or 33 percent, between fiscal year 2010 and fiscal
year 2015, according to an economic report produced by Old Dominion University.

The diversity of Virginia’s economy and its potential to weather economic doldrums, however, should not be underestimated. The state is home to about 20,000 high-tech enterprises, nearly 40 Fortune 1000 companies and some 550 foreign-owned businesses hailing from 40 nations. It also ranks
third among the states in the level of federal research and development funds that come its way annually, according to the Virginia Economic Development Partnership (VEDP).

The manufacturing sector accounts for 9.4 percent of Virginia’s GDP, according to the National Association of Manufacturers (NAM). The top manufacturing sectors are food, beverage and tobacco products; chemical products; aerospace and transportation equipment; and machinery, NAM reports.
The state also ranks first among the 50 states in shipbuilding based on employment.

Virginia’s technology sector ranks sixth among all states in total employment and it accounts for nearly 11 percent of the state’s GDP, according to an analysis by The Computing Technology Industry Association (CompTIA).

The state boasts the second-highest concentration of tech workers in the nation, with about one in 10 workers in Virginia employed in the tech field, according to the VEDP. Some 70 percent of global internet traffic passes through data centers in Virginia, VEDP reports.

Fairfax County office market

Fairfax County office market U.S. GDP growth slowed between fourth-quarter 2016 and first-quarter 2017, declining from 2.1 percent to 1.4 percent over the period, according to the U.S. Bureau of Economic Analysis (BEA). Still, GDP growth accelerated in most of the states in first-quarter
2017, with Virginia recording a 2 percent GDP bump. The real estate, rental and leasing sector was a major contributor to Virginia’s economic growth during the quarter, according to the BEA.

The crown jewel of Virginia’s real estate sector is Fairfax County, which ranks as the nation’s second-largest suburban office market and the 15th most active office-construction market in the country, according to the Fairfax County Economic Development Authority. As of year-end 2016, some 97
million square feet of office space was occupied in the county, and another 3.1 million square feet of office space spread across nine buildings was under construction. In addition, as of the same period, more than 52 million square feet of office space was in the pipeline for development.

Focus: Shipbuilding

Virginia ranks first among the states in shipbuilding employment, with some 64,000 jobs tied to the industry that generate more than $5.5 billion annually for the state’s economy, according to the American Maritime Partnership. Some 9 million tons of domestic maritime cargo originates
in Virginia each year, including more than 2.5 million tons of petroleum products that are moved by ship to other U.S. states.

The state is home to Newport News Shipbuilding, a division of Huntington Ingalls Industries, which is the largest industrial employer in the state, employing some 20,000 people. With a history dating back to the late 1800s, Newport News Shipbuilding has built in excess of 800 naval and
commercial ships. In addition, the U.S. Navy’s Norfolk Naval Shipyard in Portsmouth, Virginia, ranks as one of the largest shipyards in the world dedicated to repairing and overhauling ships and submarines.

Unemployment

The largest employment sectors in the Virginia economy, according to figures from the Virginia Employment Commission, are professional and business services; government; trade, transportation and utilities; education and health services; tourism; and manufacturing. Total nonfarm
employment was up 1.5 percent year over year as of this past July, to 3,975,900 workers, state figures show.

Virginia’s unemployment rate over the past 10 years has run well below the national rate, even during the height of the Great Recession. The U.S. unemployment rate was at or well above 9 percent from April 2009 through September 2011. By contrast, the unemployment rate in Virginia ranged
between 6.4 percent and 7.4 percent over the same period.

As of this past July, the unemployment rate in Virginia stood at 3.8 percent, compared to the national rate of 4.3 percent, federal figures show.

3 Cities to Watch

Richmond

The capital of Virginia and the former capital of the Confederacy during the Civil War, the city is home to the oldest continuously active legislative body in North America, the Virginia General Assembly — originally established in 1619 as the House of Burgesses. In addition to a
strong government sector, Richmond, with a population of some 223,000, also has a vibrant financial sector that boasts the presence of large lenders such as Capital One Financial, the metro area’s largest employer, SunTrust Banks and insurer Genworth Financial.

Charlottesville

The city is home to the University of Virginia (UVA) and famous historical sites such as Monticello, the estate of Thomas Jefferson, the third president of the United States. Charlottesville, with a population of 47,000, has the lowest unemployment rate in the state and a thriving tourism
market. A recent study determined that UVA has a nearly $6 billion economic impact on the state, which includes some 53 companies that have been launched since 2006 as a result of innovations sparked by the university.

Virginia Beach

With a population of some 450,000, the city is the largest in Virginia and home to numerous corporate headquarters, including three Fortune 500 companies: Dollar Tree, Norfolk Southern and Huntington Ingalls. The greater Virginia Beach area also is home to the Port of Virginia, one of
the top container ports on the East Coast, and hosts the largest active-duty military population in the U.S. Nine major military installations are located in the region, and seven of the world’s top 10 defense-related companies have a major presence in the area.

What the locals say

“Fairfax County is now the second-largest suburban office-space market in the country. … The commercial real estate market in the county has really increased dramatically in the last few years. Federal contracting is the foundation for much of our economy but, in the last decade
or so, we have been successful in attracting headquarters operations that have nothing to do with federal contracting. Also, we have more IT (information technology) companies than does the Silicon Valley.”

Jerry GordonPresident and CEOFairfax County Economic Development Authority